Dominion’s rate freeze gouges Virginians

ByAndrew P. Miller

April 18, 2017

Electric transmission lines at Dominion Resources Possum Point Power Station in Dumfries in 2015. (Kate Patterson for The Washington Post)

Electricity is not a grocery item. You cannot buy it at your local grocery store, choose plastic or paper at check-out and lug it home with you. Yet, Dominion’s recent essay, “An electric rate freeze is good for Virginia,” wants you to believe this and other fallacies to support its view that Virginia’s “rate freeze” law benefits consumers.

It does just the opposite.

When the Virginia General Assembly enacted S.B. 1349 in 2015, it froze electric rates at levels that were designed to allow Dominion to over-collect money from its customers; as a consequence, Virginians are now paying too much for their electricity because Dominion is earning unjustified profits.

In 2015, the staff of the State Corporation Commission determined that Dominion’s rates were designed to produce excess revenue of $310 million in 2015 and $299 million in 2016. The “rate freeze” law prohibits the commission from ordering any rate decreases or refunds until at least 2023. Thus, hundreds of millions of Virginians’ dollars will continue to flow to Dominion every year. Significantly, Gov. Terry McAuliffe (D) recently conceded that the law he signed was a mistake, but he hasn’t done anything to fix it.

Dominion’s argument ignores the reality that Dominion is a regulated utility. In exchange for being a monopoly electric service provider, e.g., the only game in town, the commission has the constitutional power and duty to regulate Dominion’s rates. No other company can deliver your electricity to you because, by law, competition is not allowed.

That is obviously not the case with grocery items. Could you imagine, should your grocer’s wholesale cost of cereal decrease, that you were then legally required to pay the same retail price and legally prohibited from buying cereal from anyone else? It would be a sweet deal for the grocery store, but not for your wallet. That’s the position Dominion is in under S.B. 1349.

Rather than talk about its excess profits, Dominion wants you to be thankful you don’t live in Maryland or the District of Columbia, where electricity rates are higher. That comparison fails because, in setting Dominion’s rates, the commission looks at Dominion’s costs incurred to serve Virginians. Maryland and District residents are served by different companies, and the costs that those companies incur are irrelevant to Dominion’s costs and rates.

Dominion also asserts that the “rate freeze” law shifted the company’s financial risk regarding environmental costs, such as compliance with the federal Clean Power Plan, from its ratepayers to its shareholders. But was there ever any such risk, and was it really shifted to shareholders? According to the commission, virtually all CPP compliance costs would have been eligible for recovery through current statutory rate adjustment clauses. These clauses allow for single-issue ratemaking for Dominion to recover its costs, rather than having them absorbed in Dominion’s frozen base rates.

Furthermore, in a recent case at the commission, Dominion’s own modeling identified relatively few costs to comply with the CPP that would be incurred during the rate freeze period. Even if the CPP were to take effect, its compliance period would not begin until 2022. That is the same year the next review of Dominion’s base rates is scheduled to occur under the “rate freeze” law. As the commission so diplomatically concluded in 2016, “the currently-effective base-rate freeze is highly unlikely to protect Virginia ratepayers from the bulk of CPP compliance costs.”

S.B. 1349 did include laudable provisions relating to weatherization, emergency assistance and solar energy projects, which Dominion should be doing anyway, but they are separate portions of the statute that would remain if the rate-freeze provision were stripped out, and their actual cost is far less than what the utility receives through its excessive frozen rates.

Under the state constitution, only the commission can set Dominion’s electric rates. The General Assembly usurped that power and set rates so high that Dominion is reaping approximately $300 million in unjustified profits per year. Virginia’s elected representatives should end this charade and return electric ratemaking to the commission. It is the only effective way to protect you, the ratepayer, from being charged too much for electricity. And you can continue to search for the lowest price groceries you can find.

The writer, a Democrat, is a former attorney general of Virginia. He created the Division of Consumer Counsel in that office.